Do mid-size CROs have business model problems? One CEO thinks so

By Zachary Brennan contact

- Last updated on GMT

How quickly can mid-size CROs push toward more innovation
How quickly can mid-size CROs push toward more innovation

Related tags: Innovation

Squeezed by the pressure of shorter deadlines and higher quality expectations, as well as by competition from larger peers, mid-size CROs may need to think more about innovation to stay ahead, a CEO of a mid-size CRO told us.

“The CRO industry has a business model issue,” ​European CRO KCR’s CEO Mike Jagielski said in a recent interview​. He also told Outsourcing-Pharma.com: “I mean that we have to find a new business model that will allow for easier innovation then the existing business model. The software industry provides a good example​.

“On the one hand we are under tremendous pressure to constantly increase efficiency and drive innovation in our operations, on the other the usually applied business model is still firmly based on billable hours by the resources providing the service. Although some attempts to move to unit costs can be observed, procurement departments still tend to calculate the latter back into hours to check if nothing has been overpriced. It emerges that the applied business model definitely poses a challenge, as it hampers innovative development,” ​Jagielski said.

Trust Issues

He also noted that one of the major challenges for CROs right now isdeveloping trust with new clients who may be wary of giving up any amount of control of their developing products. The perception that larger CROs guarantee a higher level of safety also seems to permeate.

Size can be an advantage depending on perspective. You are a large CRO that suggests security, therefore making a safe decision for execution,” ​he told us. “I would say this is certainly the case if a large pharma company would like to outsource the development of entire programs​.

However, he noted that smaller CROs “have the advantage of flexibility and rapid decision making. Execution standard can be easier adjusted to the client needs, innovations can be adapted faster – it is simply a matter of scale​.”

CRAs as Commodities?

Jagielski noted that he believes CRAs (clinical research associates) are quickly becoming a commodity, especially as bottom lines get pinched and technology moves to the forefront of trials. However, the evolution of new remote monitoring services, as well as site coordination and recruitment services could mean new work for CRAs.

Today – customers seldom asked the question what is actually included in the execution of a Monitoring Visit (MV),”​ he said. “The quality of execution is assumed to be performed at a certain level and the focus is shifting quickly to cost of MV​.”

 CRO businessHe also recommended the book, “The Experience Economy,” which he said suggests a theory of “how services become commodities and what that means as far as the impact on pricing and customer expectations​.” 

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